Philips consumer electronics chief executive Doug Dunn has boosted the company?s product range significantly since he took over the helm of the Dutch giant?s key business 18 months ago. His short term aim now is to restore the division?s financial health.
In an exclusive interview with ?VNU Newswire?, Dunn detailed his plans for new Philips products spanning digital video disks (DVDs), digital TV, and multimedia mobile products; as well as deflecting the threat posed by the Asian financial crisis to the company's global ambitions.
Dunn?s unit is significant to Philips, contributing between 25 per cent and 30 per cent of the group's revenues. However its first quarter fell into the red by Fl94 million, compared to a profit of Fl166 million a year ago. Much of this was attributed to its communications business.
The loss overshadowed sales of televisions, video casette recorders and audio which earned substantial profits. These, he said, are producing higher returns than targets set by Philips? central financial control and are generating cash into the bargain.
?Consumer electronics in Philips was fully analysed towards the end of last year. We decided it should have increasing importance in Philips? portfolio and that we should take urgent action to increase the areas we are strong and to address our weaknesses. Consumer electronics is Philips,? he said.
As a result the consumer electronics division was reorganised into five groups at the beginning of the year. These are: video which develops analogue television and video recorders; an audio unit; a unit making digital video technology for Web television, digital still cameras, and flat panel televisions; plus a PC peripherals arm. ?We are the biggest supplier in the world of monitors along with Samsung,? noted Dunn.
The fifth is a communications group which develops wireless and wired devices such as cordless telephones, screenphones and pagers. It is this unit which is merging with Lucent?s consumer communications division to create an organisation worth $2.5 billion.
Despite the reorgnisation the unit still has weak spots. Dunn believes companies that do not admit to weaknesses are kidding themselves and shareholders should think twice about investing.
?We can do a better job in marketing our products, so we have to increase our skills base. We have some excellent marketing people but not enough. We have some geographical weaknesses, maybe China. We are growing market share there but we continually have to increase the number of sales and marketing support,? he said.
?That is a cross-section where we have to do better. It is not like we have a broken leg or a disease but we have to address these issues perpetually. But there is nothing fundamentally show-stopping. They can be addressed by good management and plugging the gaps,? he explained.
One of the key areas for action is the communications group which contributed to the first quarter loss. Philips is expanded the group?s portfolio to include mobile telephones, pagers and other radio equipment to be marketed around the world but not without a lot of hard work.
?We are investing heavily in mobile [where it did not have a presence two years ago] and now we are a significant player. You can't do that without making a significant investment in marketing and manufacturing. It?s costing us money this year - more than we anticipated,? he noted. ?We are committed to being a major force in communication products. When we set up the joint venture last year [with Lucent] we did not foresee the tremendous burden of launching together two products like CDMA and TDMA [two mobile communication technologies] and gearing up to tackle Asia, eastern Europe and Latin America,? he said.
Dunn believes the cost of expansion will pay off within the next year. He said: ?Other areas did better in the first quarter and will do for the whole year. The mobile losses should slowly reduce as the year goes on.?.
Other products coming on stream will also initially be loss-making. These include digital television which will continue to make losses for the first two or three years. DVD will also not see profits this year but will next. By 2000 it will make substantial contributions as DVD recordable technology become available.
?There are currently only 25 official films on DVD. It will not take off until there are 100 or 200. In the US there are a 1,000 films and DVD is taking off well,? he said.
High definition wide screen television set sales are also being boosted by the World Cup. ?That will stimulate sales but only by a few percentage points. The first quarter sales this year in western European are up quite a bit compared to last year,? he said.
Dunn intends to continue to push products into the marketplace. Ask him about new products that are going to make money for Philips, and his reply is: ?'How much time have you got. Two years ago we were weak in new products and we went on a crash programme to bring new things out. It is a never ending programme.?
Competition remains ?tight? for Philips in the face of six or seven major rivals and some second tier manufacturers. However the Asian crisis is having little impact, though Philips does have contingency plans if it goes belly up, Dunn noted. ?Philips has no plans to make investments in that region,? he said.
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